I have certain personal psychologies and behaviors that trip one me up when investing. How do I overcome those? Can you help me with mine? I’m not talking about general mistakes people make like the sunk-cost fallacy, but about personality traits and quirks.
Here’s something I’ve found myself doing in my after-tax accounts usually: I buy a share of a particular stock/ETF and then I don’t buy any more shares until it goes down below the price I bought it. With my retirement accounts, I don’t have this problem. I just dollar-cost average every two weeks come hell or high water and these accounts have grown significantly over two decades since I’m in it for the long haul.
“‘I have seen some posts talk about people going to therapy for investing/money management, but that seems like overkill.’”
Yet I’m sitting on a large amount of cash not invested because of this behavioral quirk. It’s very intense, maybe halfway to an OCD/addictive trait. To get the “same” fund in case the price takes off, I switch funds and buy another S&P 500
fund so my starting price point is higher. How crazy is that? So I might buy SPDR S&P 500 ETF Trust
at some price point and once it goes way above that and has less of a chance of dipping back (by 20% or more) then I buy iShares Core S&P 500 ETF
etc. How does one solve this? I see overlap between investing/trading and addictive behavior; therapy, awareness, higher power, hypnosis, etc. are some of the strategies people use. I have seen some posts talk about people going to therapy for investing/money management, but that seems like overkill. I use the internet (social media) for getting input, which sometimes lets me make decisions. The issue is that these are personality quirks, not investment problems. A related problem for me is that I am afraid of making the wrong decision: I constantly worry about my choices. So I’m like a deer frozen in headlights when it comes to investing. Deer in the Headlights TraderDear Trader, You are prime contender for a robo-adviser plan. They give you decent financial advice on the cheap, and can help automate some of your anxieties and, as a result, your investing decisions. Buy stocks if you believe they will rise, and keep the big picture, long-term view foremost in your mind. Chasing short-term fluctuations will drive you up the wall. Emotions and finances are unwelcome bedfellows. Whether it’s arranging the spice rack so it’s alphabetical or having a tea and biscuits at 11 a.m. come hell or high water, or — in your case — obsessively tracking the stock market, people want to bring some order to the chaos and uncertainty that surrounds them. Whatever strategy they employ is an attempt to control something that is ultimately beyond their control. We can’t control the world’s supply-chain problems, inflation rates or wild stock-market fluctuations, or the cyclical effects in an economy recovering from a dramatic downturn during a pandemic. Weird habits and obsessive behavior give us the illusion of control. They help us feel safe, but we’re not God, and so we try and try again. You have to be aware of why you’re doing something and what the payoff is — successful or not — and be willing to do whatever it takes to break the habit, especially if it is slowly eroding your peace of mind, in order to conquer it. By immediately dismissing the idea of therapy, you are putting your obsessive-compulsive behavior above everything else.
“‘Weird habits and obsessive behavior give us the illusion of control. They help us feel safe, but we’re not God, and so we try and try again.’”
Your habits keep you engaged and stimulated, and give you the false impression that you have found a magical way of timing the market. But if they are taking up an unhealthy amount of time and space in your head, ask yourself if it’s worth it, and what you can do about it. There has been some research into stock trading as a pathologically addictive or obsessive-compulsive pastime. This 2016 paper in the journal Addiction & Health asks questions about whether a person’s trading is problematic or not. Chief among them: Are you involved in compulsive daily trading activity as your main activity in life, and/or as the researchers put it, “having persistent thoughts of reliving past trading experiences, analyzing or planning the next venture?” The researchers raise other red flags of potentially addictive stock trading, including the need to trade with increasing amounts of time and money to achieve the desired feelings of excitement; trading when feeling stressed or anxious/depressed; loss of interest in previous hobbies and activities; and becoming restless and discontent when attempts are made to cut back.
“‘If it is taking up an unhealthy amount of time or space in your head, ask yourself if it’s worth it, and what you can do about it.’”
OCD is a serious diagnosis and condition, and we should be mindful about using the term casually. “Compulsions associated with OCD disrupt normal daily activities. A diagnosis of OCD requires that the obsession or compulsions take more than one hour a day and cause major distress or cause problems at home, work or other function,” according to the American Psychiatric Association. The good news: You have not lost huge amounts of money. In fact, your slow and steady approach is the one that has paid off. You also seem self-aware enough to know that your habits — whether or not they are addictive — are encroaching on your daily life and happiness. Investing money should make you feel more secure and more carefree to live your life, not the other way around. Trading has become easier for millions of people, and it has led to some shocking losses. Take this Russian man who reportedly lost some $50 million day trading and ended up being sued by his mother. Or this rookie trader who turned $15,000 into $1 million, then lost almost everything. His takeaway from the experience? “It’s like trying to beat the casino.” Don’t turn your living room into a casino. Your peace of mind seems to be the only thing that’s affected, at least for now. Take action now while you’re ahead. Talk to a financial therapist about what’s going on. The best/worst thing that can happen is that you will learn some fascinating and insightful things about yourself. Let’s face it — you’re far more interesting a puzzle than the stock market. You can email The Moneyist with any financial and ethical questions related to coronavirus at firstname.lastname@example.org, and follow Quentin Fottrell on Twitter. Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns. The Moneyist regrets he cannot reply to questions individually. More from Quentin Fottrell: • My married sister is helping herself to our parents’ most treasured possessions. How do I stop her from plundering their home?• My mom had my grandfather sign a trust leaving millions of dollars to two grandkids, shunning everyone else• My brother’s soon-to-be ex-wife is embezzling money from their business. How do we find hidden accounts?• ‘Grandma recently passed away, leaving behind a 7-figure estate. Needless to say, things are getting messy’